Alibaba Stock Tumbles on Sharp Price Cuts to AI Services

On Wednesday, Alibaba’s ADR shares plummeted after several of its flagship large language models (LLMs) were considerably reduced in price.

The Hangzhou-headquartered company’s stock retreated 3.99% to $82.69 per share on May 22 but recovered by 0.37% after hours. Still, industry watchers predict a 0.89% slide to $81.95 apiece in the coming session, leading to a four-day losing streak.

In a bid to stay competitive amid the intensifying price war, Alibaba made its AI services more affordable. The Chinese tech giant had already implemented a series of discounts of up to 55.00% on over 100 domestic cloud computing services.

The move came after TikTok parent ByteDance trimmed prices, stating that they were now 99.00% lower than the industry standard. The cuts pushed domestic service providers to employ similar price reductions to protect their market share.

Hours after Alibaba’s announcement, Baidu said the two lightest versions of its Ernie LLM would be free for enterprise users. Meanwhile, iFlytek lowered the fee for its Spark AI chatbot to $0.03 per 10,000 input tokens or 15,000 Chinese characters.

However, tech specialists cautioned that the aggressive price war might significantly decrease the quality of Chinese AI services. Alibaba reiterated that the cuts would slow the development of new technology but would not impact the quality of current services.

AI Services Price War Pressures Alibaba

The drastic price reductions in Alibaba’s AI services added to the tension driven by rival PDD Holdings’ accelerating growth. On November 29, the online retailer hit a market capitalization of $195.90 billion to become China’s top e-commerce company, overtaking its Jack Ma-founded competitor.

PDD also reported fiscal first-quarter revenue of $12.02 billion, sharply surpassing the market consensus of $10.65 billion by 12.86%. In addition, it posted an adjusted earnings per share (EPS) of $2.83, 99.30% higher than the forecast of $1.42 apiece.

Analysts stressed that the resulting revenue drop from the AI service price cuts could hinder Alibaba’s efforts to reclaim the e-commerce crown at home.